1. Question 5-1 (Points: 3.0)
Which of the following terms is used to describe the rate on which cash payments on bonds are based?
1. market rate
2. effective rate
3. stated rate
4. yield rate
2. Question 5-2 (Points: 3.0)
On July 1, 2010, Wilson Company issued $1,000,000, five-year, 9% bonds at 97. The reason Wilson issued the bonds at a discount was
1. the stated rate of interest was lower than the rate being paid on investments with comparable risk.
2. the stated rate of interest was the same as the rate being paid on investments with comparable risk.
3. the stated rate of interest was higher than the rate being paid on investments with comparable risk.
4. the bonds were callable.
3. Question 5-3 (Points: 3.0)
The amortization of bond premium by the issuer will
1. increase interest expense.
2. decrease interest expense.
3. have no effect on interest expense.
4. determine the cash paid for interest.
4. Question 5-4 (Points: 3.0)
Which of the following are generally recorded as liabilities on the balance sheet?
1. Remote likelihood liabilities
2. Reasonably possible likelihood liabilities
3. Probable likelihood liabilities
4. All of the above
5. Question 5-5 (Points: 3.0)
On January 1, 2010, April Corporation sold a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the 2010 income statement would be (to the nearest dollar)
1. $1,547
2. $883
3. $773
4. $700
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